When selecting a technical analysis software package, consider where and when you are going to use it, what type of data feed you require, and the type of technical analysis indicators that you like to use. Currency traders typically need forex charting software only and provided for free through their preferred forex broker.
The following are descriptions of the most common features of currency technical analysis applications. Take note that some software may focus on only one aspect (say back testing) and the combination of more than one software is often required to build a fully automated currency trading system.
Description of Forex Technical Analysis Software Features:
Forex Charting Applications
A graphical interface that presents price and technical analysis indicators through a variety of visual interfaces such as line, bar, candlestick and OHLC (open high low close) charts. The chart data is presented as a time series and users typically have the ability to view historical data with varying interval (sampling) periods.
Interval periods range from seconds through to months; short term traders tend to use frequent interval periods, such as 1 minute i.e. the price data is updated every 1 minute, whereas longer term traders tend to use daily, weekly or monthly interval periods when trying to identify price and technical analysis trends. Most charting packages enable users to draw support & resistance trend lines, plot pivot points or for example fibonacci retracements to help establish trending patterns.
Back-testing
Enables currency traders to test technical analysis investment timing strategies against historical price movement for a specific currency pair(s). Strategies are compared to each other using diverse performance measurements such as maximum drawdown, annual profit and Sharpe ratio. The objective is to try and develop a technical analysis trading strategy based on technical analysis indicator criteria, which will generate a positive return. Some forex charting packages have the ability to back-test your pre-programmed trading strategies. (for example: Metatrader and TradingStation)
Optimization
Is a process of testing technical analysis indicator parameters, with the view to developing an investment strategies that generates the maximum return based on historical price movement. The optimization process is achieved through the fine-tuning of the associated technical analysis charting parameters. Typically technical analysis indicators have a range of parameters that can be adjusted, such as the interval period and the technical analysis indicator variables.
For example the Stochastic indicator has four parameters that effect its results: %k, %d, slowing period, interval period. Optimization must be performed carefully to avoid curve fitting. Back testing of an over-optimized system will perform admirably with past data because it becomes a good approximation function that fits the past data, however it is not uncommon to see a lesser performance when evaluated in real-time.
One way to diminish over-optimization is by carrying out optimization on historical data and then performing future testing (sometimes referred to as 'out of sample') before making a final evaluation of a trading strategy.
Data Feed
Forex technical analysis software is typically used with real time data feeds and not End Of Day data(EOD).
Currency Broker Interface
Some technical analysis software can be integrated with brokerage platforms to enable traders to place trades via a user interface that they are familiar with. Typically these software providers try to differentiate themselves from the brokerage software through enhanced features such as automated trading.
Online or Download Software?
When selecting a forex technical analysis software solution consider when and where you are going to use it. Technical analysis software solutions are typically delivered via software downloads and only work on limited operating systems, such as Windows, Linux or Macs.
Download paid for services typically restrict the number of 'installations' that you can make therefore you may not have the ability to access your technical analysis software if you are away from your PC. On-line solutions provide access from any computer that has a web browser, however their use is restricted or not available if you are off-line.
Mobile Phone/ PDA access
Mobile phone or PDA devices can be used to access some online technical analysis applications when away from your computer. Online technical analysis software with Java Applets typically do not work on mobile phones or PDA.
